DAYTRADING Fundamentals Message Board

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Strategies & Market Trends : DAYTRADING Fundamentals

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To: Dave O. who wrote (8012)	4/26/2000 9:19:00 PM
From: davealex	Read Replies (2) of 18137

I'm Harping on Risk & Money Management Again... Bottom line, a market correction would seem to only wipe out those who won't cut losses quickly and/or continue to try to trade long (in a corrective market). I agree with your first premise about cutting losses, but trading long or short is irrelevant. All of this talk by the media of day traders getting "wiped out" is just plain ignorance. I day trade and I am hard-pressed to come up with ANY scenario that would "wipe me out" short of the entire market being halted and then gapping past the stops on my open positions. I can only assume that most other day traders trade as I do: We short intraday downtrends and go long intraday uptrends and we use tight stops so that we know exactly how much money we are risking on any given trade. Period. When it moves in our direction, we use trailing stops and take partial profits as we go. And if we follow our risk and money management strategy, the risk is small -- 1% of the entire account balance or less. We move to cash by the end of the day unless we are specifically playing a potential gap in our direction in an open position based on the strength of the close and prevailing market conditions. So how can "day traders" who trade like that get "wiped out" in a correction? Seems to me that day traders are the ONLY ones in a position to instantly react and save their accounts in a sudden and severe correction because they are constantly monitoring the markets and can get out immediately when their stops are hit or when they see the market go to hell. But beyond the simple timeframe issue, the crux is risk and money management. The types of traders who COULD be "wiped out" are the heavily-margined traders and investors who don't use stops. Traders -- whether day, swing, or position -- who have stops in place and who use correct risk and money management techniques are not subject to being "wiped out" in a correction, no matter how severe. Seems pretty clear to me: The problem is that the media and others who talk about day traders who got wiped out in this correction need a lesson in trading and in money and risk management. THAT is what wipes people out -- not the timeframe of their trades, nor the volatility of their positions, nor the sector of their choice. It would be more correct to say that careless traders and investors who did not practice sound risk and money management got wiped out. And that's just Darwin's principal at work. Having said that, I still think risk and money management lessons should be required and given by brokerages before anyone can trade. Just because Darwin was right doesn't mean I like to see fellow traders tossed off the ship because they have never even heard of risk and money management. Dave

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